Public sector must do more with less

Allister Heath
AN intriguing book has just dropped onto my desk (and no, I’m not referring to Gordon Brown’s massive self-justificatory opus, which I shall ignore for as long as possible). Called More with Less, it summarises the findings of one of the largest independent studies into public sector performance in the UK to date, conducted by the Advanced Performance Institute. Senior managers from over 400 public sector organisations shared their views on key performance challenges and how they could be overcome.

The findings from Bernard Marr and James Creelman are deeply troubling. Astonishingly, public sector organisations spend about 20 per cent of their time on form-filling, auditing, measuring and reporting performance – yet only a fraction of this is ever used to gain relevant and new insights or to make better decisions that lead to performance improvements. Two-thirds of senior public sector leaders believe that individuals in their organisation occasionally fabricate data.

What this confirms is what many in the private sector have long believed. Public sector productivity – output per worker – has performed abysmally in recent years, but it could easily be increased by at least 10 per cent with better management and incentives. Another way of looking at it is that the public sector could relatively easily produce the same amount of output – including the same amount of frontline services – for 10 per cent fewer costs (and that is only assuming that half the time and energy spent on form-filling is eliminated).

These sorts of savings are routinely pushed through in the private sector; and when that happens companies do their utmost to ensure consumers don’t notice any difference to quality. Yet because of misaligned incentives between consumers and producers in the public sector, we are seeing unnecessary cuts to frontline services and no real revolution in the way the public sector is operated. Because there is no real market, no property rights and no real prices in the public sector, information is limited and processes inherently inefficient. But there are shades of waste and Britain’s public sector ought to be able to become at least a little less inefficient.

More with Less will be published next month by Palgrave Macmillan. Someone should give George Osborne a copy.

So in the end Barack Obama did the right thing, under intense pressure from Republicans. The Bush tax cuts will be extended for another two years. No wonder the markets bounced yesterday: returns to investors would have been slashed had taxes been hiked on income, capital gains and dividends.

Some of the uncertainty facing American executives, entrepreneurs and shareholders has now been lifted. Perhaps the most reassuring part is that US politicians still recognise that excessively high tax rates hit incentives and performance. The debate in Britain is more confused, with the government claiming to understand this with its commitment to cut corporation tax – but at the same time it is constantly trying to wring more out of companies in other ways. Where the US lags the UK, however, is the absence of any real understanding of the need to keep exploding levels of public spending in check.

Unless this is tackled, and something is done about middle class entitlements, America will eventually face its very own sovereign crisis.